U.K. urged by EU to probe alleged currency rigging in Libor’s wake

Tensions intensifying

Britain should investigate the manipulation of currency rates, European Union officials said after Bloomberg News revealed that traders have been rigging foreign-exchange benchmarks for more than a decade.

“They need to get to the bottom of it,” Sharon Bowles, 60, chairwoman of the European Parliament’s economic and monetary affairs committee and a member of the U.K. Liberal Democrat party, said in an interview. “It’s quite upsetting we have got another bad-news story. It’s time we managed to restore the reputation of our banks.”

The U.K. Financial Conduct Authority, created in April to oversee markets and prosecute financial crime, is looking into potential manipulation in the $4.7 trillion-a-day foreign- exchange market, a person briefed on the matter said. Bloomberg News reported yesterday that traders at some of the world’s biggest banks rigged benchmark WM/Reuters rates, according to five current and former dealers with knowledge of the practice.

Tensions between Britain and its EU partners about oversight of the financial industry have intensified after three banks were fined about $2.5 billion for rigging the benchmark London interbank offered rate, or Libor. The European Commission is considering whether to move oversight of Libor away from the U.K. to a Paris-based watchdog.

Benchmark Framework

EU regulators will be making a proposal this summer on the “framework for benchmarks” such as the WM/Reuters rates and Libor, according to Chantal Hughes, a spokeswoman for Michel Barnier, the EU’s financial-services chief. The EU last year proposed making manipulation of financial benchmarks a crime.

The WM/Reuters rate manipulation, “following on from the other recent allegations and investigations into the manipulation of oil, biofuel, gas as well as interest-rate benchmarks, once again highlight the need for a broad-based regulatory regime,” Hughes wrote in an e-mail. “Benchmarks share similar vulnerabilities.”

In the U.S., Carl Levin, a Michigan Democrat who heads the Senate Permanent Subcommittee on investigations, said in a June 12 e-mailed statement that the U.S. Treasury Department should “reconsider its ill-advised exemption” of foreign-exchange swaps and forward contracts from the 2010 Dodd-Frank Act.

Regulators should stop “price-rigging abuses” by “finalizing the long-overdue Merkley-Levin provisions on proprietary trading and conflicts of interest,” Levin said, referring to provisions he sponsored with fellow Senate Democrat Jeff Merkley of Oregon.

‘Banking Scandal’

U.S. Representative Maxine Waters, the top Democrat on the House Financial Services Committee, called the news “another major banking scandal” and said in a statement it warrants collaboration between regulators and the Justice Department to determine whether criminal charges are warranted.

“Federal regulators should further assess potential reference-rate reforms,” the California lawmaker said. “As we’ve seen with the Libor cases, it is clear that these systems remain vulnerable to fraud and abuse.”

The Office of the Comptroller of the Currency, which regulates U.S. national banks, supervises foreign-currency trading within the firms and takes the allegations “very seriously,” said Bryan Hubbard, an OCC spokesman. The agency is “working with other regulators, domestically and internationally, to look into these concerns,” he said.

‘Maintaining Confidence’

Britain’s FCA, which took on some of the duties of the disbanded Financial Services Authority, is already working with global regulators to examine the integrity of benchmarks, including those used in valuing derivatives and commodities after traders at Barclays Plc, UBS AG and Royal Bank of Scotland Group Plc were found to have colluded to rig benchmark interest rates for profit. Regulators also are investigating benchmark rates for the crude-oil and swaps markets.

“Regulators have an important role maintaining confidence and integrity in markets, and should rapidly act on any suggestion that untoward things are happening,” said Paul Myners, a Labour Party member of Parliament’s House of Lords and financial-services minister from 2008 to 2010. “It is vital that the FCA show that it’s willing to be much more aggressive than their predecessor. This will be their first test.”

Chancellor of the Exchequer George Osborne moved to replace the FSA after the financial crisis. Lawmakers criticized the regulator for failing to prevent the rescues of Northern Rock Plc, RBS and Lloyds Banking Group Plc. The FSA was created in 1997 by then-Chancellor Gordon Brown.